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That's not "creating" money - you have "money" in your account, but that's just a number. In reality, that money is on the bank's balance sheet, and it can lend
by tomp 12y ago
That's not "creating" money - you have "money" in your account, but that's just a number. In reality, that money is on the bank's balance sheet, and it can lend it to others (or a part of it, depending on the regulations). It can also lend money that was actually created by the central bank and loaned to the commercial bank. But regardless of the number on your account, if the bank runs out of money (is insolvent), your money is gone (absent government guarantees/bailouts).
- bubbleRefuge 12y agoYou are confused. There is no such thing as a loanable funds market. The guy at the bank making the loan does not call the other guy at the bank to look in the safe and see if the funds exist to loan out. Doesn't work that way. Banks have to have appropriate capital ratios in order to stay in business and be considered solvent. Those ratios are entirely determined by regulation. By and large, the only thing stopping a bank from 'creating money' or making a loan is the willing and able consumers.